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Why Netflix Inc. Shares Got Annihilated Today

The online entertainment giant's core growth metric disappoints, and looming competition is also tightening the screws.

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What's happening? Shares of streaming video leader Netflix(NASDAQ:NFLX) are down by more than 21% today -- the largest such drop since 2012 and one of the six largest daily declines in the company's public history -- after reporting disappointing subscriber growth for the third quarter yesterday evening.

Why it's happening Netflix's revenue was up 27% to $1.41 billion, and its bottom line nearly doubled to $0.93 per share, in line with and ahead of Wall Street's expectationsfor $1.41 billion in revenue and $0.93 in EPS, respectively. However, the company added only 3.02 million net new subscribers to end up with 53.06 million total subscribers worldwide, which falls somewhat below the company's own projections for 53.74 million total subscribers for the quarter. Fool analyst Rick Munarriz, a longtime Netflix bull, points out that a price hike this May helped depress subscriber growth, and the company's new subscriber projections for the fourth quarter fall well below earlier expectations.

It's also worth considering the impact of news from Time Warner's (NYSE:TWX) premium channel HBO, which had a big announcementof its own yesterday. HBO will now offer a stand-alone online streaming service, which will finally give millions of fervent Game of Thrones and True Detective fans a way to see their favorite shows without a cable subscription -- or an illegal download. This news marks a huge change in streaming landscape, as HBO's shows are among the most pirated in the world. A shift of even a few million subscribers from Netflix to HBO Go would have a major impact on Netflix's bottom line, and HBO Go's standalone success will likely embolden other media giants to try unbundling their most popular channels to offer as a la carte streaming subscriptions.

Author

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.